A Guide to Making Your First Home Purchase More Affordable

Are you considering your first home purchase? One essential rule in this endeavor is to only buy what you can reasonably afford. 

It's common, particularly among first-time buyers, to feel concerned about being able to afford even an entry-level home in the current market. Around 92 percent of first-time buyers in a 2022 ConsumerAffairs Survey reported that they cannot afford a mortgage. 

Considering that, it's no wonder the number of American first-time buyers only made up 26 percent of the total home buyers in 2022. So far, this is the lowest percentage of first-time buyers recorded in the US since the data collection started.

The persistently high prices and increasing interest rates of homes make homeownership more challenging. But on the upside, careful financial planning can help first-time buyers lower the cost of their first home purchase in the long term. 

With this guide, discover how to make your first home buying experience easier and more affordable. 

Save Up for a Higher Down Payment 

First-time buyers must often set aside savings for a down payment and secure financing for the remaining amount to purchase a home. 

The necessary down payment may depend on the type of financing you're seeking. But typically, you'll need a 20 to 25 percent down payment to become eligible for a loan. Remember, putting down a larger down payment will make your home purchase more affordable. 

With a higher down payment, you only need a smaller amount to buy a home, resulting in a lower monthly mortgage payment. It can also reduce the interest you need to pay throughout the life of the loan. 

Hence, consider saving up for a more sizable downpayment to reduce the cost of purchasing your first home. 

Find a Mortgage Option With a Lower Interest Rate

A higher mortgage interest rate will translate to higher monthly payments, ultimately increasing your home's cost. Conversely, lower interest rates will make your mortgage financing and home purchase more affordable. 

You should find a mortgage option with a lower interest rate to minimize borrowing costs. But several types of mortgages are available for homebuyers, and not all of them are created the same. 

Mortgage brokers can be beneficial when securing a low-interest mortgage. These brokers often work with various lenders, giving you access to different loan products. This provides you with more options to choose from and find the most suitable mortgage for your financial situation. 

It's also a good idea to look into first-time home buyer assistance programs. These programs may qualify you for a home with a lower minimum down payment and an imperfect credit score. 

Prioritize Building Up Your Credit Score

Higher credit scores boost your chances of securing financing and qualifying for a lower and better interest rate. Conversely, a low credit score can make the borrowing cost more expensive, rendering your dream home unaffordable. 

Over the life of your loan, the difference in cost between a credit score of 620 and 760 can reach tens of thousands of dollars. Even a mere one percent decrease in your mortgage interest rate can result in substantial savings on the overall interest you pay over the loan term. 

Thus, if you want to save money on your first home purchase, prioritize building up your credit score as soon as possible. But how do you build and improve your credit score? Consider the following tips: 

• Regularly check your credit report to correct any potential errors.

• Pay your bills promptly or on time. 

• Request for a credit limit increase. 

• Maintain a mix of credit cards and installment loans. 

• Establish a relationship with your bank. 

Know the Ideal Time To Close on a House

Choosing the time to close on a house is often not a priority in many home-buying decisions. But knowing the ideal time for closing is essential if you want to save money on your first home purchase. 

Some home buyers find closing at the beginning of the month more beneficial as it gives them more time between closing and the first mortgage payment. However, if your goal is to minimize the interest in closing costs, closing at the end of the month might be the ideal choice. 

That’s because upfront interest and taxes will be calculated from the closing date to the last day of the month, resulting in lower closing costs due to the shorter period for interest and taxes to accumulate. 

Learn How To Negotiate Seller Concessions

Negotiating seller concessions can also help make your home purchase more affordable. With a seller concession, the seller agrees to cover all or some of the buyer's closing costs. 

Closing costs often range between three to six percent of the home price. If you can get the seller to pay for these costs, you can save substantial money at the closing table. However, it's worth noting sellers are not required to grant this to buyers. 

Knowing the current housing market is crucial when negotiating a seller concession. You may be better off working with a real estate agent who understands the local market conditions. They can also help you determine whether or not you should request closing costs or put in a lower offer. 

Be Realistic and Adaptable With Your Expectations

Being financially ready is crucial, whether you're a first-time home buyer or not. These tips can help make your desired home affordable. But being realistic and adaptable to your expectations is vital as well. 

Remember that the type of home and neighborhood you choose can affect the purchase cost. It's important to stay aligned with your budget and adjust your preferences based on how much you can comfortably afford. 

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